LITMIR.BIZ

Скачать книгу

privacy, conflict, and security problems at giant tech companies, a bank-free consumer-finance system could be a very high-risk consumer-finance system.

One doesn't have to look far to see the grand ambitions tech companies harbor in the financial-services arena. These huge companies already derive 11 percent of their revenue from financial services,⁴⁴ but many want to do more – lots more. For example, Facebook announced “Libra” in June 2019.⁴⁵ Libra combines the 2.6 billion or more users Facebook counts on its social-media platform with a “crypto-asset”-based currency. Libra touts all the lower-income households it would include in the financial-services marketplace. Yet crypto-assets are not just secret, but also very high risk. Who bears this risk? In Facebook's plan, customers – not Facebook – take the fall.

      The ability of tech companies to know where you live, with whom, and so much else about us may encourage them to make you a loan a bank wouldn't touch. But all of this personal information also gives these companies the power to price financial services based on data stockpiles that differentiate the rich from everyone else. Given that these companies are at least as profit-hungry as banks, will they still make loans to lower-income people once they are sure which of their customers buys high-markup products? Will financing costs go up for even essential financial services because the big-tech company has enough data to charge higher-risk customers instead of cross-subsidizing transactions across the entire customer base? Will artificial intelligence really secure fair lending when it still can't even read the faces of people of color? How will tech companies cross-sell checking accounts and sneakers? That is, might we get a loan from a tech company, but only if we buy the products it produces at prices it demands under terms no federal regulator can control? One former US regulator has observed:

Today's economic activity is built on digital code. Digital information is the most important capital asset of the 21st century. Typically, Gilded Age assets were hard assets: industrial products that ended up being sold. Today's economy runs on the soft assets of computer algorithms that crunch vast amounts of data to produce as their product a new piece of information. The business of networks like Comcast, AT&T, and Verizon, and of platform service providers like Google, Facebook, and Amazon is not just connections or services, but the digital information about each of us that is collected via those activities and subsequently reused to target us with specific messages.⁴⁶

      What if all this power to send us messages combines with the power to hold and manage, transfer, and even create our money?

      Banks are barred from commerce because of manifest conflicts of interest and risks when a lender is also a manufacturer, advertiser, publisher, and retailer. Big-tech platform companies have no such constraints and can thus condition financial-product access on the purchase of other goods or services, alter pricing based on personal financial information or relationships, and otherwise transform financial services with far-reaching inequality impact.

How to Fix Financial Policy

      The first fix is for the Fed to see America as it is, not as it was. Top Fed officials came of age in the 1970s and 1980s when America was among the most equal nations in the world. At that time, monetary-policy theory could rightly assume that aggregate data about income and wealth represented the vast majority of Americans.

Now, due to American inequality, the country as a whole no longer buys goods and services or invests as old models predict.⁴⁷ Vast differences in US educational levels have resulted in large numbers of low-skilled, low-wage workers who do not move where jobs are plentiful or otherwise respond to economic signals as conventional monetary-policy models anticipate.⁴⁸ We will see in Chapters 6 and 7 how antiquated analytics have been destructive not just to Fed thinking, but also to its ability to transmit monetary policy. Mistaken analytics have also done irreparable damage to equality because policy inadvertently but all too effectively benefits only the wealthiest among us.

The second fix goes to the heart of this mistaken monetary-policy construct, requiring the Fed to stop rescuing financial markets in trickle-down giant programs and instead to support ground-up growth. This starts with stepping back and letting markets function normally instead of rushing in to save them each time a little stress shows itself in a bad day on Wall Street. We will see in Chapter 6 that the Fed has mistakenly made policy since the early 2000s based on an expectation that market rescues lead to a “wealth effect” that then benefits the rest of us after the wealthy have had their fill. Unprecedented inequality ever since is clear proof that the wealth effect is all too effective for the wealthy, but an accelerant to economic hardship for everyone else.

      As we will also see, the wealth effect has made markets prone to another risk. Known as “moral hazard,” it occurs when investors take high-risk bets, insouciant in the knowledge that the Fed will always bail them out. It did in 2008 and again in 2020, making financial markets rise ever higher even as unemployment rose to unprecedented heights. The Fed readily admits it doesn't know how to normalize the trillions now on its hands in the wake of all its post-COVID rescues, suggesting very slow normalization should anything like normal ever again be possible. We will see in Chapter 11 how to take the Fed's heavy hand off the market as quickly as possible without overturning the market at the same time.

The third fix needed for an equality-focused policy reckons not only with the anti–wealth equality effect of the Fed's giant portfolio, but also the anti–income equality impact of ultra-low interest rates. The lower these go, the less companies spend on investment, the harder it is for lower-skilled workers to find jobs, and the farther behind family savings fall from any hope of buying a home, going debt-free to college, or securing retirement. Equality will advance with a smaller Fed portfolio and higher interest rates. These are counterintuitive to traditional thinking, which assumes that the bigger the Fed and the lower the interest rates, the better it is for bottom-up growth. Since 2008, the Fed followed this traditional playbook and became by far the biggest it's ever been, driving rates below zero after taking even a little bit of inflation into account. The result was inequitable, slow growth and a fragile financial system that crumpled virtually in minutes when markets realized how dangerous the pandemic would prove. As we will see, it's simply impossible to have a stable financial system without economic equality no matter the trillions the Fed deploys to stabilize markets. Trickle-down monetary policy has proven disastrous to both equality and stability. The Fed indeed must quickly remedy this not just by normalizing its portfolio, but also by gradually raising interest rates to provide for what I call a “living return” – that is, a rate enough above that of inflation to give small savers growing nest eggs from which to start families, buy homes, or retire in comfort.

      And, federal financial regulators should redesign post-crisis regulation so that its burden is borne equitably by all financial companies, especially those companies that offer higher-risk financial products to vulnerable households. This would expand the supply of equality-essential financial services beneath an umbrella of regulation that protects at-risk consumers. It would also ensure that privateering financial companies die by their own hand instead of receiving the trillions of dollars in bailouts proffered during the great financial crisis and again as COVID struck. We'll see how asymmetric regulation creates equality and financial-system risk in Chapter 8, with solutions laid out in Chapter 10. These include new ways to apply like-kind rules to like-kind companies, changes to key rules to increase credit availability for low- and moderate-income (LMI) households, and

Скачать книгу